Strategic Managment-Test 2-Short Answers
List four major reasons annual objectives are essential for strategy implementation.
Annual objectives are essential for strategy implementation because they: 1) represent the basis for allocating resources; 2) are a primary mechanism for evaluating managers; 3) are the major instrument for monitoring progress toward achieving long-term objectives; and 4) establish organizational, divisional, and departmental priorities.
Discuss guidelines used to determine whether a firm should conduct R&D internally or externally.
First, if the rate of technical progress is slow, the rate of market growth is moderate, and there are significant barriers to possible new entrants, then in-house R&D is the preferred solution. Second, if technology is changing rapidly, and the market is growing slowly, then a major in-house effort in R&D may be risky. Third, if technology is changing slowly but the market is growing quickly, there generally is not enough time for in-house development. Finally, if both technical progress and market growth are fast, R&D expertise should be obtained through acquisition of a well-established firm in the industry.
Explain why it is important to encourage whistle-blowing in a firm.
Some firms warn managers and employees that failing to report an ethical violation by others could bring discharge. The SEC recently strengthened its whistle-blowing policies, virtually mandating that anyone seeing unethical activity report such behavior. Whistle-blowing refers to policies that require employees to report any unethical violations they discover or see in the firm.
Describe some tactics used by politicians that can also aid strategists.
1. Achieving desired results is more important than imposing a particular method, so consider various methods and choose, whenever possible, the one(s) that will afford the greatest commitment from employees/managers. 2. Achieving satisfactory results with a popular strategy is generally better than trying to achieve optimal results with an unpopular strategy. 3. An effective way to gain commitment and achieve desired results is oftentimes to shift from specific to general issues and concerns. 4. An effective way to gain commitment and achieve desired results is oftentimes to shift from short-term to long-term issues and concerns. 5. Middle level managers must be genuinely involved in and supportive of strategic decisions because successful implementation will hinge on their support.
What are the advantages and disadvantages of a divisional organizational structure?
A divisional structure has some clear advantages. The first is that accountability is clear. Also, it creates career development opportunities for managers, allows local control of local situations, leads to a competitive climate within an organization, and allows new businesses and products to be added easily. A divisional structure does have its limitations. A divisional structure is costly because each division requires functional specialists who must be paid, there exists some duplication of staff services, facilities and personnel, and better-qualified individuals require higher salaries. It is also costly because it requires an elaborate headquarters-driven control system. Finally, competition between divisions may become so intense that it is dysfunctional and leads to limited sharing of ideas and resources for the common good of the firm.
Using a Grand Strategy Matrix approach, what strategies are recommended for a firm that is a weak competitor in a slow-growing market? Elaborate on what these strategies could mean for a college or university.
A firm that is a weak competitor in a slow-growing market would be located in Quadrant III. Quadrant III strategies include retrenchment, diversification, divestiture, and liquidation. Student answers will vary when elaborating on what these strategies could mean for a college or university. However, students should mention that the college or university could possibly have to be closed. Faculty and/or staff might have to be greatly reduced, which could lead to unhappy students in very large classes.
Discuss a code of business ethics and its role in an organization.
A new wave of ethics issues related to product safety, employee health, sexual harassment, AIDS in the workplace, smoking, Internet fraud, identify theft, affirmative action, waste disposal, etc., has accentuated the need for strategists to develop a clear code of business. Merely having a code of ethics, however, is not sufficient to ensure ethical business behavior. A code of ethics can be viewed as a public relations gimmick. To ensure that a code is read, understood, believed, and remembered periodic ethics workshops are needed to sensitize people to workplace circumstances in which ethics issues may arise. If employees see examples of punishment for violating the code as well as rewards for upholding the code, this reinforces the importance of a firm's code of ethics.
Explain some of the forces leading companies to pursue international operations.
A primary reason why most domestic firms are engaging in global operations is that growth in demand for goods and services outside the USA is considerably higher than inside. Shareholders and investors expect sustained growth in revenues from firms; satisfactory growth for many firms can only be achieved by capitalizing on demand outside the USA. Fully 95 percent of the world's population lives outside the USA, and this group is growing 70 percent faster than the U.S. population. The lineup of competitors in virtually all industries is global. And while there are a few U.S. industries that are not yet greatly challenged by foreign competitors, like furniture manufacturing and retailing, many products and components within these industries too are now manufactured in foreign countries.
What drawback has the resurgence of wildlife populations in the USA had?
A recent Wall Street Journal article titled "America Gone Wild" talks about how wildlife populations in the USA have experienced an "astonishing resurgence." A drawback of the resurgence is that the total cost of wildlife damage to U.S. crops, landscaping, and infrastructure now exceeds $28 billion a year, including $1.5 billion from deer-vehicle crashes alone.
Describe a sustainability report.
A sustainability report is an annual report that reveals how the firm's operations impact the natural environment. It may include information about the firm's labor practices, product sourcing, energy efficiency, environmental impact, and business ethics practices. The Global Reporting Initiative recently issued a set of detailed reporting guidelines specifying what information should go into sustainability reports. The proxy advisory firm Institutional Shareholder Service reports that an increasing number of shareholder groups are pushing firms to provide sustainability information annually.
What are the three commonly used strategies or approaches for implementing changes in an organization? Give an advantage and/or disadvantage for each type of approach.
Although there are various approaches for implementing changes, three commonly used strategies are a force change strategy, an educative change strategy, and a rational or self-interest change strategy. A force change strategy involves giving orders and enforcing those orders; this strategy has the advantage of being fast, but low commitment and high resistance plague it. An educative change strategy is one that presents information to convince people of the need for change; the disadvantage of an educative change strategy is that implementation becomes slow and difficult. However, this type of strategy evokes greater commitment and less resistance than does the force change strategy. Finally, a rational or self-interest change strategy is one that attempts to convince individuals the change is to their personal advantage. When this appeal is successful, strategy implementation can be relatively easy.
Explain the nature and role of ESOPs in strategic management.
An ESOP is a tax-qualified, defined-contribution, employee-benefit plan whereby employees purchase stock of the company through borrowed money or cash contributions. ESOPs empower employees to work as owners. Besides reducing worker alienation and stimulating productivity, ESOPs allow firms other benefits, such as substantial tax savings. Principal, interest, and dividend payments on ESOP-funded debt are tax-deductible. Banks lend money to ESOPs at interest rates below prime. This money can be repaid in pretax dollars, lowering the debt service as much as 30 percent in some cases.
Discuss some things firms can do to diminish the risk of doing business internationally.
Before entering international markets, firms should scan relevant journals and patent reports, seek the advice of academic and research organizations, participate in international trade fairs, form partnerships, and conduct extensive research to broaden their contacts and diminish the risk of doing business in new markets. Firms can also offset some risks of doing business internationally by obtaining insurance from the U.S. government's Overseas Private Investment Corporation.
What is business analytics and why is it so important in businesses today?
Business analytics is an MIS technique that involves using software to mine huge volumes of data to help executives make decisions. Sometimes called predictive analytics, machine learning, or data mining, this software enables a researcher to assess and use the aggregate experience of an organization, a priceless strategic asset for a firm. The history of a firm's interaction with its customers, suppliers, distributors, employees, rival firms, and more can all be tapped with data mining to generate predictive models. Business analytics is similar to the actuarial methods used by insurance companies to rate customers by the chance of positive or negative outcomes. Therefore, like insurance companies, all businesses can benefit from measuring, tracking, and computing the risk associated with hundreds of strategic and tactical decisions made everyday. Business analytics enables a company to benefit from measuring and managing risk. As more and more products become commoditized, competitive advantage more and more hinges on improvements to business processes. Business analytics can provide a firm with proprietary business intelligence regarding which segment(s) of customers choose your firm versus those who defer, delay, or defect to a competitor and why. Business analytics can reveal where competitors are weak so that marketing and sales activities can be directly targeted to take advantage of resultant opportunities (knowledge). In addition to understanding consumer behavior better, business analytics is also being used to slash expenses.
Discuss how business ethics, social responsibility, and sustainability are interrelated.
Business ethics, social responsibility, and sustainability are interrelated and impact all areas of the comprehensive strategic-management model. Many people, for example, consider it unethical for a firm to be socially irresponsible. Social responsibility refers to actions an organization takes beyond what is legally required to protect or enhance the well-being of living things. Sustainability refers to the extent that an organization's operations and actions protect, mend, and preserve rather than harm or destroy the natural environment. Polluting the environment, for example, is unethical, irresponsible, and in many cases illegal.
Explain the important issues involved in deciding whether to go public, i.e., a private firm considering becoming a public firm. Include cost estimates, advantages and disadvantages.
Going public is not recommended for companies with less than $10 million in sales, because the initial costs can be too high for the firm to generate sufficient cash flow to make going public worthwhile. The average total cost paid to lawyers, accountants, and underwriters when the initial issuance is under $1 million is 25%. For issuances over $20 million this amount drops to 5%. In addition to initial costs, there are costs and obligations associated with reporting and management in a publicly held firm. For firms with more than $10 million in sales, going public can provide major advantages: It can allow the firm to raise capital to develop new products, build plants, expand, grow, and market products and services more effectively.
Discuss some ways in which management information systems can benefit a company.
Having an effective management information system (MIS) may be the most important factor in differentiating successful from unsuccessful firms. Information collection, retrieval, and storage can be used to create competitive advantages in ways such as cross-selling to customers, monitoring suppliers, keeping managers and employees informed, coordinating activities among divisions, and managing funds. Like inventory and human resources, information is now recognized as a valuable organizational asset that can be controlled and managed. A good information system can allow a firm to reduce costs. Improved quality and service often result from an improved information system.
Discuss ISO 14000 and ISO 14001.
ISO 14000 refers to a series of voluntary standards in the environmental field. The ISO 14000 family of standards concerns the extent to which a firm minimizes harmful effects on the environment caused by its activities and continually monitors and improves its own environmental performance. Included in the ISO 14000 series are the ISO 14001 standards in fields such as environmental auditing, environmental performance evaluation, environmental labeling, and life-cycle assessment. ISO 14001 is a set of standards adopted by thousands of firms worldwide to certify to their constituencies that they are conducting business in an environmentally friendly manner.
If you construct a SPACE Matrix and the directional vector points to the lower left quadrant, what type of strategies would you recommend? Give several examples.
If the directional vector points to the lower-left quadrant of the SPACE Matrix, students should suggest defensive strategies. Defensive strategies include retrenchment, divestiture, liquidation, and related diversification.
Discuss the economic outlook for Africa.
Investors are now looking closely at Africa in the wake of low interest rates and slow growth elsewhere on the planet. Many African companies are expanding operations in Africa. For example, South Africa's Shoprite Group in 2013 added 223 stores in 16 African countries other than South Africa. Reasons companies are opening outlets in Africa is the rapidly growing middle class and an average GDP growth of 5 percent for the continent through 2017 according to the IMF. Also the World Bank says that food demand across Africa will double between 2012 and 2020. Approximately 40 percent of Africans now live in urban areas and the number of households with discretionary income should increase 50 percent by the end of the decade. Graham Allan, CEO of Yum Restaurants International, recently said, "A lot of companies, especially Chinese ones, have invested in Africa; we share the general view that Africa over the next 10 to 20 years will have massive potential." McKinsey & Co. says the number of consumers who can spend beyond bare necessities is greater now in Africa than India. From 2000 to 2009, foreign direct investment in Africa increased 600 percent to $58.56 billion.
List some of the diverse and unique risks that face multinational corporations (MNCs).
MNCs face unique and diverse risks, such as expropriation of assets, currency losses through exchange rate fluctuations, unfavorable foreign court interpretations of contracts and agreements, social/political disturbances, import/export restrictions, tariffs, and trade barriers. Strategists in MNCs are often confronted with the need to be globally competitive and nationally responsive at the same time. With the rise in world commerce, government and regulatory bodies are more closely monitoring foreign business practices. The U.S. Foreign Corrupt Practices Act, for example, monitors business practices in many areas.
Explain the concept of matching in the strategy formulation framework. Give at least three examples of matching.
Matching external and internal critical success factors is the key to effectively generating feasible alternative strategies. See Table 6-1 for examples of matching.
Compare and contrast business culture in the USA with Mexico.
Mexicans desire harmony rather than conflict; there is a much lower tolerance for adversarial relations or frictions at work in Mexico as compared to the United States. Whereas U.S. business embodies individualism, achievement, competition, curiosity, pragmatism, informality, spontaneity, and doing more than expected on the job, Mexican businesses stress collectivism, continuity, cooperation, belongingness, formality, and doing exactly what you're told. Mexicans do not feel compelled to follow rules that are not associated with a particular person in authority they work for and know well. Thus signs to wear earplugs or safety glasses, or attendance or seniority policies, and even one-way street signs are often ignored. Whereas Americans follow the rules, Mexicans often do not. Life is slower in Mexico than the United States. Tardiness is common everywhere. Meeting times and appointments are not rigid.
Describe some key features of the European work environment.
Most European workers are unionized and enjoy more frequent vacations and holidays than U.S. workers. A 90-minute lunch break plus 20-minute morning and afternoon breaks are common in European firms. Guaranteed permanent employment is typically a part of employment contracts in Europe. In socialist countries like France and the U.K., the only grounds for immediate dismissal from work is a criminal offense. Many Europeans resent pay-for-performance, commission salaries, and objective measurement and reward systems. Many Europeans also find the notion of team spirit difficult to grasp because the unionized environment has dichotomized worker-management relations throughout Europe.
What are ideal points on perceptual maps? Explain their relation to market segments and demand voids.
Perceptual maps may display consumers' ideal points. These points reflect ideal combinations of the two dimensions as seen by a consumer. Each dot represents one respondent's ideal combination of the two dimensions. An area where there is a cluster of ideal points indicates a market segment. Areas without ideal points are sometimes referred to as demand voids. A company considering introducing a new product will look for areas with a high density of ideal points. They will also look for areas without competitive rivals (a vacant niche), perhaps best done by placing both the (1) ideal points and (2) competing products on the same map.
Name at least ten issues that may require a management policy.
Possible answers include: 1) To offer extensive or limited management development workshops and seminars. 2) To centralize or decentralize employee-training activities. 3) To recruit through employment agencies, college campuses and/or newspapers. 4) To promote from within or to hire from the outside. 5) To promote on the basis of merit or on the basis of seniority. 6) To tie executive compensation to long-term and/or annual goals. 7) To offer numerous or few employee benefits. 8) To negotiate directly or indirectly with labor unions. 9) To delegate authority for large expenditures or to retain this authority centrally. 10) To allow much, some, or no overtime work. 11) To establish a high- or low-safety stock of inventory. 12) To use one or more suppliers. 13) To buy, lease, or rent new production equipment. 14) The degree to which to stress quality control. 15) To establish many or only a few production standards. 16) To operate one, two, or three shifts. 17) To discourage using insider information for personal gain. 18) To discourage sexual harassment. 19) To discourage smoking at work. 20) To discourage insider trading. 21) To discourage moonlighting.
Name five examples of finance and accounting decisions that may require policies
Possible answers include: 1) To raise capital with short-term debt, long-term debt, preferred stock, or common stock; 2) To lease or buy fixed assets; 3) To determine an appropriate dividend payout ratio; 4) To use LIFO, FIFO, or a market-value accounting approach; 5) To extend the time of accounts receivable. 6) To establish a certain percentage discount on accounts within a specified period of time; 7) To determine the amount of cash that should be kept on hand.
Discuss some of the reasons why strategy evaluation is becoming increasingly difficult with the passage of time.
Possible answers include: Domestic and world economies were more stable in years past; product life cycles were longer; product development cycles were longer; technological advancement was slower; change occurred less frequently; there were fewer competitors; foreign companies were weak; and there were more regulated industries. Other reasons include the following trends: 1) A dramatic increase in the environment's complexity; 2) The increasing difficulty of predicting the future with accuracy; 3) The increasing number of variables; 4) The rapid rate of obsolescence of even the best plans; 5) The increase in the number of both domestic and world events affecting organizations; and 6) The decreasing time span for which planning can be done with any degree of certainty.
Within an organization, who is responsible for providing ethics leadership?
Primary responsibility for ensuring ethical behavior rests with a firm's strategists. However, an integral part of the responsibility of all managers is to provide ethics leadership by constant example and demonstration. Managers hold positions that enable them to influence and educate many people. This makes managers responsible for developing and implementing ethical decision making.
Explain the concept of protectionism.
Protectionism refers to countries imposing tariffs, taxes, and regulations on firms outside the country to favor their own companies and people. Many countries became more protectionist during the recent global economic recession. Most economists argue that protectionism harms the world economy because it inhibits trade among countries and invites retaliation.
What quantitative criteria are commonly used to evaluate strategies? Give several examples of these criteria.
Quantitative criteria commonly used to evaluate strategies are financial ratios, which strategists use to make three critical comparisons: 1) comparing the firm's performance over different time periods; 2) comparing the firm's performance to that of competitors'; and 3) comparing the firm's performance to industry averages.
In a BCG Matrix, all divisions are classified as either Question Marks, Stars, Cash Cows, or Dogs. Define each of these terms.
Question Marks have a low relative market share position, yet they compete in a high-growth industry. Stars represent the organization's best long-run opportunities for growth and profitability, having a high relative market share and a high industry growth rate. Cash Cows have a high relative market share position but compete in a low-growth industry. Dogs have a low relative market share position and compete in a slow- or no-market-growth industry.
Compare and contrast Ralph Nader's and Milton Friedman's positions on social responsibility. With whose view do you agree?
Ralph Nader proclaims that organizations have tremendous social obligations. Nader points out that ExxonMobil has more assets than most countries, and because of this such firms have an obligation to help society cure its many ills. The economist Milton Friedman asserts that organizations have no obligation to do any more for society than is legally required. Friedman may contend that it is irresponsible for a firm to give monies to charity. Students' responses will vary regarding their personal view on social responsibility.
Compare and contrast restructuring and reengineering.
Restructuring involves reducing the size of the firm in terms of number of employees, number of divisions or units, and number of hierarchical levels in the firm's organizational structure. Restructuring is concerned primarily with shareholder well-being rather than employee well-being. In contrast, reengineering is concerned more with employee and customer well-being than shareholder well-being. Reengineering involves reconfiguring or redesigning work, jobs, and processes for the purpose of improving cost, quality, service, and speed. Whereas restructuring is concerned with eliminating or establishing, shrinking or enlarging, and moving organizational departments and divisions, the focus of reengineering is changing the way work is actually carried out. Reengineering is characterized by many tactical decisions, whereas restructuring is characterized by strategic decisions.
Compare and contrast two of Rumelt's four criteria for evaluating strategies.
Rumelt's four criteria for evaluating strategies are consistency, consonance, feasibility, and advantage. Consonance and advantage are mostly based on a firm's external assessment, whereas consistency and feasibility are largely based on an internal assessment. Consistency: a strategy should not present inconsistent goals and policies. Organizational conflict and interdepartmental bickering may be a sign of strategic inconsistency. Consonance: this refers to the need for strategists to examine sets of trends, as well as individual trends, in evaluating strategies. Feasibility: the final broad test of strategy is feasibility; that is, can the strategy be attempted within the physical, human, and financial resources of the enterprise? Advantage: a strategy must provide for the creation and/or maintenance of a competitive advantage in a selected area of activity. Competitive advantages normally are the result of superiority in one of three areas: resources, skills, or position.
Discuss the appropriate role of a board of directors in an organization.
Some principles are: No more than two directors are current or former company executives. The audit, compensation and nominating committees are made up solely of outside directors. Each director owns a large equity stake in the company. Each director attends at least 75 percent of all meetings. The board meets regularly without management present and evaluates its own performance annually. The CEO is not also the Chairperson of the Board. There are no interlocking directorships (where a director or CEO sits on another director's board).
Explain why strategy evaluation can be a complex and sensitive undertaking.
Strategy evaluation can be a complex and sensitive undertaking. Too much emphasis on evaluating strategies may be expensive and counterproductive. No one likes to be evaluated too closely! The more managers attempt to evaluate the behavior of others, the less control they have. Yet too little or no evaluation can create even worse problems. Strategy evaluation is essential to ensure that stated objectives are being achieved.
What are five differences between strategy formulation and strategy implementation?
Strategy formulation is positioning forces before the action, whereas strategy implementation is managing forces during the action. Strategy formulation focuses on effectiveness, whereas strategy implementation focuses on efficiency. Strategy formulation is primarily an intellectual process, whereas strategy implementation is primarily an operational process. Strategy formulation requires good intuitive and analytical skills, whereas strategy implementation requires special motivational and leadership skills. Strategy formulation requires coordination among a few individuals, whereas strategy implementation requires coordination among many individuals.
Identify some characteristics of an effective evaluation system.
Strategy-evaluation activities must be economical, meaningful, and timely. Strategy evaluation should be designed to provide a true picture of what is happening. Controls need to be action-oriented rather than information-oriented. The strategy-evaluation process should not dominate decisions; it should foster mutual understanding, trust, and common sense. The test of an effective system is its usefulness, not its complexity. There is no one ideal system; the unique characteristics of a firm should determine the system's final design.
Name five examples of marketing decisions that may require policies.
Student answers may vary. Possible answers include: 1) To use exclusive dealerships or multiple channels of distribution; 2) To use heavy, light, or no TV advertising; 3) To limit (or not) the share of business done with a single customer; 4) To be a price leader or a price follower; 5) To offer a complete or limited warranty; 6) To reward salespeople based on straight salary, straight commission, or a combination salary/commission; 7) How to make advertisements more interactive to be more effective; and 8) How to best take advantage of Facebook and Twitter conversations about the company and industry.
Give five sets of coordinates of SPACE Matrix directional vectors that would suggest conservative strategies to be most appropriate.
Student answers will vary. However, five examples they may suggest are (-1, 1), (-2, 2), (-3, 3), (-4, 4), and (-5, 5). Any pair of coordinates with a negative x-coordinate and a positive y-coordinate is correct, in other words, any pair of coordinates that describe a point in the upper-left quadrant.
Identify and describe three approaches for determining a business' worth.
Students should identify and describe three of the following approaches. The first approach is determining its net worth or stockholders' equity. After calculating net worth, add or subtract an appropriate amount for goodwill, overvalued or undervalued assets, and intangibles. The second approach grows out of the belief that the worth of any business should be based largely on the future benefits its owners may derive through net profits. A conservative rule of thumb is to establish a business' worth as five times the firm's current annual profit. The third approach is called the price-earnings ratio method. It divides the market price of the firm's common stock by the annual earnings per share and multiplies this number by the firm's average net income for the past five years. The fourth method can be called the outstanding shares method. To use this method, simply multiply the number of shares outstanding by the market price per share and add a premium. The premium is simply a per-share dollar amount that a person or firm is willing to pay to control the other company.
List five reasons why preserving the environment should be a permanent part of doing business.
Students should list any 5 of the following 7 reasons why firms should be "green:" 1) Consumer demand for environmentally safe products and packages is high. 2) Public opinion demanding that firms conduct business in ways that preserve the natural environment is strong. 3) Environmental advocacy groups now have over 20 million Americans as members. 4) Federal and state environmental regulations are changing rapidly and becoming more complex. 5) More lenders are examining the environmental liabilities of businesses seeking loans. 6) Many consumers, suppliers, distributors, and investors shun doing business with environmentally weak firms. 7) Liability suits and fines against firms having environmental problems are on the rise.
Discuss the different perspectives and concerns of the Balanced Scorecard.
The Balanced Scorecard is a process that allows firms to evaluate strategies from four perspectives: financial performance, customer knowledge, internal business processes, and learning and growth. It aims to balance long-term concerns with short-term concerns, financial with non-financial concerns, and internal with external concerns.
Compare and contrast the IE Matrix with the BCG Matrix.
The IE Matrix is similar to the BCG Matrix in that both tools involve plotting organizational divisions in a schematic diagram. Also, the size of each circle represents the percentage sales contribution of each division, and pie slices reveal the percentage profit contribution of each division in both the BCG and IE Matrix. Some important differences between the IE Matrix and the BCG Matrix include: 1) different axes; 2) the IE Matrix requires more information about the divisions than the BCG Matrix; and 3) the strategic implications of each matrix are different.
Describe each of the activities that comprise strategy evaluation.
The activities that comprise strategy evaluation are: 1) reviewing bases of an organization's strategy; 2) measuring organizational performance; and 3) taking corrective actions. Step 1 can be achieved by developing a revised EFE Matrix and IFE Matrix. External opportunities and threats and internal strengths and weaknesses that represent the bases of current strategies should continually be monitored for change. Step 2 includes comparing expected results to actual results, investigating deviations from plans, evaluating individual performance, and examining progress being made toward meeting stated objectives. Criteria for evaluating strategies should be measurable and easily verifiable. Step 3 requires making changes to competitively reposition a firm for the future. Examples of such action are altering a firm's structure, selling a division, or revising a business mission. Taking corrective actions does not necessarily mean that existing strategies will be abandoned or even that new strategies must be formulated.
There are four basic ways a divisionally structured firm could be organized. What are these four ways? Give an example of each.
The four basic ways a divisionally structured firm could be organized are: 1) by geographic area. An example of this would be any organization with similar branch facilities located in widely dispersed areas, like Hershey; 2) by product or service. General Motors, DuPont, Microsoft, and Procter & Gamble are examples of divisional structure by product; 3) by customer. Book publishing companies often organize their activities around customer groups such as college, secondary schools, and private commercial schools; and 4) by process. An example of this is a manufacturing business organized into six divisions: electrical work, glass cutting, welding, grinding, painting and foundry work. Each division would be responsible for generating revenues and profits.
Explain the benefits and limitations of developing a Boston Consulting Group Matrix.
The major benefit of the BCG Matrix is that it draws attention to the cash flow, investment characteristics, and needs of an organization's various divisions. The BCG Matrix has some limitations: 1) Viewing every business as either a Star, Cash Cow, Dog or Question Mark is an oversimplification; many businesses fall right in the middle of the BCG Matrix and thus are not easily classified; 2) the BCG Matrix does not reflect whether or not various divisions or their industries are growing over time; that is, the matrix has no temporal qualities, but rather it is a snapshot of an organization at a given point in time; and 3) other variables besides relative market share position and industry growth rate in sales are important in making strategic decisions about various divisions.
What are some of the reasons for and against the U.S. adopting international financial reporting standards (IFRS).
The old GAAP standards comprised 25,000 pages, while the new IFRS comprises only 5,000 pages, so in that sense IFRS is less cumbersome. IFRS rules are more streamlined and less complex than GAAP. The Chamber of Commerce supports the switch and says it will lead to much more cross-border commerce and help the U.S. compete in the world economy. Others say the switch will help U.S. companies raise capital abroad and do business with firms abroad. On the other hand, the switch will cost U.S. businesses millions of dollars in fees and upgraded software systems and training. U.S. CPAs need to study global accounting principles intensely. The switch is also anticipated to be plagued by gaping differences in business customs, financial regulations, tax laws, politics, and other factors.
Discuss how Japan is dealing with problems associated with an aging and shrinking workforce.
The percentage of persons age 65 or older exceeds 20 percent in Japan. Unlike the USA, Japan is reluctant to rely on large-scale immigration to bolster its workforce. Instead Japan is providing incentives for its elderly to work until ages 65 to 75. In addition to keeping the elderly at work, Japan's other key remedy for sustaining its workforce in factories and businesses involves reversing the old-fashioned trend of keeping women at home.
Explain how to perform a projected financial analysis.
The steps to performing a projected financial analysis are as follows: 1) prepare the projected income statement before the balance sheet and start by forecasting sales as accurately as possible; 2) use the percentage-of-sales method to project CGS and the expense items in the income statement; 3) calculate the projected net income; 4) subtract from the net income any dividends to be paid for that year and bring this retained earnings amount over to the balance sheet by adding it to the prior year's RE shown on the balance sheet; 5) project the balance sheet items, beginning with retained earnings and then forecasting stockholders' equity, long-term liabilities, current liabilities, total liabilities, total assets, fixed assets, and current assets—in that order; and 6) list comments on the projected statements.
Describe the steps involved in effective contingency planning.
The suggested process of effective contingency planning is as follows: 1) Identify both good and bad events that could jeopardize strategies; 2) determine when the good and bad events are likely to occur; 3) determine the expected pros and cons of each contingency event; 4) develop contingency plans for key contingency events; 5) determine early warning trigger points for key contingency events and monitor them.
What are the three particular challenges that strategists face today?
The three challenges that strategists face today are: 1) deciding whether the process of strategic management should be more of an art or a science; 2) deciding whether strategies should be visible or hidden from stakeholders; or 3) deciding whether the process should be more top-down or bottom-up in the firm.
What are the five steps required for perceptual mapping? Give an example of a perceptual map for an organization of your choice.
There are five steps required for effective perceptual mapping. These five steps are as follows: 1) select key criteria that effectively differentiate products or services in the industry; 2) diagram a two-dimensional product-positioning map with specified criteria on each axis; 3) plot major competitors' products or services in the resultant four-quadrant matrix; 4) identify areas in the positioning map where the company's products or services could be most competitive in the given target market and look for niches; and 5) develop a marketing plan to position the company's products or services appropriately. Student examples of perceptual maps will vary.
Discuss the dos and don'ts in developing organizational charts.
There are some basic dos and don'ts in regard to devising or constructing organizational charts, especially for midsize to large firms. First of all, reserve the title CEO for the top executive of the firm. Don't use the title "president" for the top person; use it for the division top managers if there are divisions within the firm. Also, do not use the title "president" for functional business executives. They should have the title "chief," or "vice president," or "manager," or "officer," such as "Chief Information Officer," or "VP of Human Resources." Further, do not recommend a dual title (such as "CEO and President") for just one executive. Actually, "chairperson" is much better than "chairman" for this title. Directly below the CEO, it is best to have a COO (chief operating officer) with any division presidents reporting directly to the COO. On the same level as the COO and also reporting to the CEO, draw in your functional business executives, such as a CFO (chief financial officer), VP of Human Resources, a CSO (Chief Strategy Officer), a CIO (Chief Information Officer), a CMO (Chief Marketing Officer), a VP of R&D, a VP of Legal Affairs, an Investment Relations Officer, Maintenance Superintendent, etc. Note in Figure 7-8 that these positions are labeled and placed appropriately. Note that a controller and/or treasurer would normally report to the CFO.
Describe the positive features and limitations of QSPM.
There are three positive features of QSPM: 1) Sets of strategies can be examined sequentially or simultaneously; 2) there is no limit to the number of strategies that can be evaluated or the number of sets of strategies that can be examined at once using the QSPM; and 3) the last positive feature is that it requires strategists to integrate pertinent external and internal factors into the decision process. The QSPM is not without some limitations: 1) It always requires intuitive judgments and educated assumptions; 2) The ratings and attractiveness scores require judgmental decisions, even though they should be based on objective information; and 3) it can be only as good as the prerequisite information and matching analyses upon which it is based.
Discuss at least five potential advantages to initiating, continuing, and/or expanding international operations.
They include: 1) Firms can gain new customers for their products. 2) Foreign operations can absorb excess capacity, reduce unit costs, and spread economic risks over a wider number of markets. 3) Foreign operations can allow firms to establish low-cost production facilities in locations close to raw materials and/or cheap labor. 4) Competitors in foreign markets may not exist, or competition may be less intense than in domestic markets. 5) Foreign operations may result in reduced tariffs, lower taxes, and favorable political treatment. 6) Joint ventures can enable firms to learn the technology, culture, and business practices of other people and to make contacts with potential customers, suppliers, creditors, and distributors in foreign countries. 7) Economies of scale can be achieved from operation in global rather than solely domestic markets. Larger-scale production and better efficiencies allow higher sales volumes and lower-price offerings. 8) A firm's power and prestige in domestic markets may be significantly enhanced if the firm competes globally, which can translate into improved negotiating power among creditors, distributors, suppliers, etc.
Discuss at least five potential disadvantages to initiating, continuing, and/or expanding international operations.
They include: 1) Foreign operations could be seized by nationalistic factions. 2) Firms confront different and often little-understood social, cultural, demographic, environmental, political, governmental, legal, technological, economic, and competitive forces when doing business internationally. This can make communication in the firm difficult. 3) Weaknesses of competitors in foreign lands are often overestimated, and strengths are often underestimated. Keeping informed about the number and nature of competitors is more difficult when doing business internationally. 4) Language, culture, and value systems differ among countries, which can create barriers to communication and problems managing people. 5) Gaining an understanding of regional organizations is difficult but is often required in doing business internationally. 6) Dealing with two or more monetary systems can complicate international business operations.
Discuss some contingency plans commonly established by firms.
They include: 1) if a major competitor withdraws from particular markets as intelligence reports indicate, what actions should our firm take? 2) If our sales objectives are not reached, what actions should our firm take to avoid profit losses? 3) If demand for our new product exceeds plans, what actions should our firm take to meet the higher demand? 4) If certain disasters occur — such as loss of computer capabilities; a hostile takeover attempt; loss of patent protection — what actions should our firm take? 5) If a new technological advancement makes our new product obsolete sooner than expected, what actions should our firm take?
Describe how organizations can create an ethics "culture."
To create an ethics culture, many organizations have developed a code-of-conduct manual outlining ethical expectations and giving examples of situations that commonly arise in their business. Citicorp even developed a business ethics board game, played by thousands of employees worldwide, that gives players the opportunity to react to hypothetical ethical situations. Ethics workshops and training are also key. Ethics training programs should include messages from the CEO or business owners emphasizing ethical business practices, the development and discussion of codes of ethics, and procedures for discussing and reporting unethical behavior. Firms can align ethical and strategic decision making by incorporating ethical considerations into longer-term planning, by integrating ethical decision making in the performance appraisal process, by encouraging whistle-blowing, and by monitoring departmental and corporate performance regarding ethical issues.
Although there are many marketing variables that impact the success or failure of strategy-implementation efforts, two variables are central to the process. What are these variables? Discuss why they are so important.
Two variables of central importance to strategy implementation are market segmentation and product positioning. Segmentation is important because it is a key to matching supply and demand, which is one of the thorniest problems in customer service. Segmentation often reveals that large, random fluctuations in demand actually consist of several small, predictable and manageable patterns. Product positioning is important because it is a severe mistake to assume the firm knows what customers want and expect. Many firms have become successful by filling the gap between what customers and producers see as good service. What the customer believes is good service is paramount, not what the producer believes service should be. Positioning entails developing schematic representations that reflect how a firm's products or services compare to competitors' on dimensions most important to success in the industry.
Discuss union membership across Europe.
Union membership in Europe ranges from 74 percent of employees in Finland to 8 percent in France. Percentage of membership is not the only indicator of strength, though. In France, for example, unions have repeatedly shown that despite low membership, they are able to mobilize workers in mass strikes and demonstrations to great effect. The average level of union membership in the EU, weighted by the numbers employed in the different member states, is 23 percent compared to about 11 percent in the USA. High rates of union membership in Nordic countries reflect an approach that sees union membership as a natural part of employment. The level of union membership is trending downward all over Europe. Only 8 of the 27 EU states plus Norway have seen a gain in union members among the employed in recent years, and this growth has not kept pace with the growth in employment, so union density has actually drifted downward. The two exceptions are Ireland and Italy, where union membership is slowly growing.
There are three major approaches for managing and resolving conflict in an organization. Define these three approaches and give an example of each.
Various approaches for managing and resolving conflict can be classified into three categories: avoidance, defusion, and confrontation. Avoidance includes such actions as ignoring the problem in hopes the conflict will resolve itself, or physically separating the conflicting individuals. Defusion can include playing down differences between conflicting parties while accentuating similarities and common interests, compromising so there is neither a clear winner nor loser, resorting to majority rule, appealing to a higher authority, or redesigning present positions. Confrontation is exemplified by exchanging members of conflicting parties so each can gain an appreciation of the other's point of view, or holding a meeting at which conflicting parties present their views and work through their differences. Student answers will vary on the examples given for each approach.
Discuss how work life/home life balance is being addressed by organizations.
Work/family strategies have become so popular among companies today that the strategies now represent a competitive advantage for those firms that offer such benefits as elder care assistance, flexible scheduling, job sharing, adoption benefits, an on-site summer camp, employee help lines, pet care, and even lawn service referrals. New corporate titles such as work and life coordinator and director of diversity are becoming common. A corporate objective to become more lean and mean must today include consideration for the fact that a good home life contributes immensely to a good work life. The work/family issue is no longer just a women's issue. Some organizations offer family days, when family members are invited to the workplace and given a chance to see what other family members do each day. Flexible working hours are another human resource response to the need for individuals to balance work life and home life.
Why should companies have policies addressing workplace romance?
Workplace romance between two consenting employees simply happens, so the question is generally not whether to allow the practice, or even how to prevent it, but rather how best to manage the phenomena. Organizations should establish guidelines or policies that address workplace romance for at least 6 reasons: 1) Guidelines can enable the firm to better defend itself against and avoid sexual harassment or discrimination charges; 2) Guidelines can specify reasons why workplace romance may not be a good idea; 3) Guidelines can specify resultant penalties for romancing partners if problems arise; 4) Guidelines can promote a professional and fair work atmosphere; 5) Guidelines can help assure compliance with federal, state, and local laws and recent court cases; 6) Lack of any guidelines sends a lackadaisical message throughout the firm.
